What a US$ Rebound Means for Gold

The decline in the US$ index in 2017 has been relentless. From a high of nearly 104 at the end of 2016, the US$ index has steadily declined to as low as 93.00. While this has certainly fueled the strength in precious metals, it has not been able to lift the sector as much as typically expected. That is because Gold’s performance relative to other assets has been weak and much weaker than in 2016. Friday Gold broke above key resistance of $1260/oz but it remains below its 2017 highs as the US$ index tests support amid a very oversold condition and negative sentiment. Simply put, Gold will have to prove itself in real terms if it is going to hold its ground or breakout as the US$ begins a likely bounce.

First, let’s take a look at Gold’s relative performance by comparing it in nominal terms to Gold priced in foreign currencies (FC) and Gold against equities. While Gold held the low $1200s and rallied back to $1275, Gold/FC recently broke support and tested its December 2016 low. The Gold/equities ratio is rallying from critical support. Recent lows in Gold/FC and Gold/equities need to hold if Gold is going to hold its ground also.